Clark County School District’s bond rating downgraded
Two major bond rating agencies have downgraded the financially stressed Clark County School District as it prepares for Thursday’ s refinancing sale of $110 million in school construction bonds.
The ratings from Moody’s Investors Service and Fitch Ratings are still in the high-grade category of AA, which is attractive to institutional investors. But the two agencies, along with Standard and Poor’s, also gave district bonds a "negative outlook" for the next one to two years.
"When they say negative, what they’re saying is more risk ahead," said Clark County School Board member John Cole, who is a former member the district’s Bond Oversight Committee.
"They’re worried about the continued drag on our tax base because of (low) property values," Cole said.
The district’s share of the property tax rate, 0.5534 per $100 of assessed value, is its main source of revenue for paying off $4.2 billion in debt from its 1998 school construction program.
To mitigate cuts in state funding, Gov. Brian Sandoval has proposed that Nevada school districts use half of their bond reserves as operating funds. In the Clark County School District, that would mean transferring $300 million from the debt service reserve fund to the operating budget over the next two years. Because of the weak economy, district officials have estimated an operating budget shortfall of $250 million to $270 million for the next school year.
District officials have warned that they might have to increase the property tax rate by 2013 to meet the district’s debt service payment obligations if the Legislature adopts the governor’s proposal.
The bond rating agencies have indicated the district’s uncertain financial future is behind the downgrades.
"The downgrade from AA1 to AA2 reflects the likelihood that additional budgetary pressures will remain for the near term and credit strengths, including tax base size and funding stability … have diminished," Moody’s reported.
Fitch has downgraded the district’s bonds from AA to AA-.
The ratings reflect the ability of the bond issuer to repay its debt. AAA is the top grade but AA is not bad either, officials said .
"Once you go below double A, you lose the institutional investors," said Pat Zamora, vice president of Nevada State Bank Public Finance and the district’s bond couns el.
Aside from a "recalibration" of Fitch’s bond rating scale in 2010, when the school district went from an AA+ to AA, the district’s bonds have never been downgraded, he said.